TIME DEPOSITS: Interest-paying bank accounts maintained by traditional commercial banks, credit unions, savings and loan associations, and mutual savings banks with a minimum time (at least seven days) before deposited funds can be withdrawn. Time deposits come in one of two varieties: (1) savings deposits and (2) certificates of deposit. The minimum time period prevents these accounts from functioning as demand deposits and being widely used as money. Time deposits, along with money market mutual funds, are added to M1 to derive M2.

Three conditions of the mixed economy that are most important for macroeconomics, including full employment, stability, and economic growth, that are generally desired by society and pursued by governments through economic policies.

Full Employment

Full employment is achieved when all available resources (labor, capital, land, and entrepreneurship) are used to produce goods and services. This goal is commonly indicated by the employment of labor resources (measured by the unemployment rate). However, all resources in the economy--labor, capital, land, and entrepreneurship--are important to this goal. The economy benefits from full employment because resources produce the goods that satisfy the wants and needs that lessens the scarcity problem. If the resources are not employed, then they are not producing and satisfaction is not achieved.

Stability

Stability is achieved by avoiding or limiting fluctuations in production, employment, and prices. Stability seeks to avoid the recessionary declines and inflationary expansions of business cycles. This goal is indicated by month-to-month and year-to-year changes in various economic measures, such as the inflation rate, the unemployment rate, and the growth rate of production. If these remain unchanged, then stability is at hand. Maintaining stability is beneficial because it means uncertainty and disruptions in the economy are avoided. It means consumers and businesses can safely pursue long-term consumption and production plans. Policies makers are usually most concerned with price stability and the inflation rate.

Economic Growth

Economic growth is achieved by increasing the economy's ability to produce goods and services. This goal is best indicated by measuring the growth rate of production. If the economy produces more goods this year than last, then it is growing. Economic growth is also indicated by increases in the quantities of the resources--labor, capital, land, and entrepreneurship--used to produce goods. With economic growth, society gets more goods that can be used to satisfy more wants and needs--people are better off; living standards rise; and scarcity is less of a problem.

Tradeoffs

The three macroeconomic goals of full employment, stability, and economic growth are widely considered to be beneficial and worth pursuing. Each goal, achieved by itself, improves the overall well-being of society. Greater employment is typically better than less. Stable prices are better than inflation. Economic growth is better than stagnation.

However, the pursuit of one goal often restricts attainment of others. For example, policies that promote economic growth might create unemployment or policies that improve stability might limit economic growth. Macroeconomic goals are also often in conflict with the microeconomic goals of efficiency and equity.

Consider a few hypothetical situations, depicted by the hypothetical Republic of Northwest Queoldiolia, in which the pursuit of one goal limits achieving another goal.

Full Employment and Stability: The Central Bank of Northwest Queoldiolia seeks to promote lower rates of unemployment through expansionary monetary policy. The economy expands, unemployment falls, and full employment is achieved, but inflation emerges from the over stimulated economy.

Economic Growth and Full Employment: Seeking to keep pace with economic growth in neighboring Southeast Queoldiolia, the President of Northwest Queoldiolia enacts an intense program of scientific research and development. The program bears ample fruit, creating scores of new technological innovations that lead to high rates of economic growth, but implementation of the innovations disrupts the economy throwing millions of people who lack the necessary skills or training needed by the new technologies out of work.

Policies and Politics

The pursuit of these three macroeconomic goals is inherently an act of normative economics. In fact, the "norm" part of term normative economics is synonymous with the word "goal." Normative economics is essential to the pursuit of economic goals.

In a mixed economy, the pursuit of these goals is largely directed by governments. This, of course, brings into play the wonderful world of politics and never-ending debates over which of these three macroeconomic goals is most worth pursuing with economic policies.

As the discussion turns to politics and policies, two viewpoints tend to emerge--liberal and conservative. Generalities are, of course, fraught with exceptions. However, with that caution in mind, note that each of the two political views have historically placed greater emphasis on the attainment of some goals over others.

Liberals have tended to seek full employment over stability and economic growth. Conservatives, in contrast, have sought economic growth and stability, especially price stability, more so than full employment.

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